ERP Finance: 3 Ways ERP Improves Financial Management

When it comes to assessing the benefits of an enterprise resource planning (ERP) solution, people commonly think of supply chain, manufacturing, and production benefits. Rarely does anyone make the connection that an ERP system will benefit the company’s financial management. In fact, if you look at some of the numbers that Panorama Consulting Solutions published from its
research, it is no wonder that most people associate ERP solutions with costing too much money. Over 50 percent of respondents reported cost overruns, and more than half of those surveyed responded to either not having recouped the costs associated with their ERP implementation or not knowing if these costs have been recouped.

Where Are the Benefits?

In a general sense, an ERP solution that is properly implemented provides the organization with an extensive view of how the company is doing from an income, expense, and profit standpoint. From a glance, management can view complete details related to their accounts and how they integrate with business analytics. More importantly, this total view of the company’s financials helps to improve financial control and manage risk.

Although this may sound like the pitch given by any number of vendors, it does provide a nice overview of the way ERP can improve financial management. Let’s take a minute to look over more specific ways that companies can see these improvements.

Cash Flow

To any business, cash flow drives everything forward. When
surveyed about how their ERP solution benefitted their business, 52 percent of business decision makers reported that they realized better cash flow and liquidity, leading—among other things—to a reduction in the age of customer debt.

This improvement comes as a result of the ERP system helping the business to better manage inventory through setting stock levels. Automatic reordering and keeping up with trends can help the business make better decisions regarding manufacturing, thus keeping costs to a minimum. Using the ERP system effectively for marketing and sales also keeps efforts more targeted and focused to help increase revenue.

Companies that employ data-driven decision management are reported to have 4 percent higher productivity rates and 6 percent higher profits than those that don’t, according to the MIT Center for Digital Business. The right ERP solution can put this type of data into the company’s hands to give it this competitive advantage.

ERP systems allow instant visibility into data such as accounting, budgeting, financial reporting, sales, order management, and billing—all of which can be used by management to make better decisions.

Data can be useful to C-level management, as well. With the ability to capture real-time insights into what is happening in the business, financial officers and executive officers will be able to see exactly what is happening in the financial function or any other arm of the company.

Like any other department, an ERP system has the potential to add many improvements to finance as well. However, it is important to note that many bare-bones solutions might not have all of the proper modules to provide this added value right out of the box. When evaluating vendors, make sure that you include the need for financial management as part of your requirements to ensure that the package is complete and there are no cost overruns caused by the need to add this component at a later date.

About the Author

Jeff Orloff is a content developer for an e-mail security awareness company. He has been involved in technology for years, working with networks, Web, and security. In addition to Jeff’s hands-on work in IT, he has written many articles on the same topics. Jeff is an analyst with Studio B.